Title : The Effects of Decentralisation on Public Investment: Evidence and Four Lessons from Bolivia and Colombia
Working Paper No : 62 (series 1)
Author(s) : Jean-Paul Faguet
Date : June 2005
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Abstract: Hundreds of
studies have failed to establish the effects of decentralisation
on a number of important policy goals. This paper examines the
cases of Bolivia and Colombia to explore decentralisation’s
effects on government responsiveness and poverty-orientation. I
first summarize economic data on the effects of decentralisation
in each. In Bolivia, decentralisation made government more
responsive by re-directing public investment to areas of
greatest need. In Colombia, municipalities increased investment
significantly as decentralisation deepened, while running costs
fell. In both countries, investment shifted from economic
production and infrastructure to social services and human
capital formation. Resources were rebalanced in favour of poorer
districts. The contrast between the two also highlights four
important lessons. In order for decentralisation to work well, (i)
local democracy must be free, fair, transparent and competitive;
(ii) sub-national governments must face hard budget constraints;
(iii) central government must be scaled back; and (iv)
significant tax-raising powers must be devolved to the
periphery. Where all four conditions obtain, decentralising
resources and political authority can generate real
accountability where none existed before, and improve the
quality of government a society achieves.